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Archive for Darlene Hart

Mexit: Potential Tax Issues For The Duke And Duchess of Sussex

Duke And Duchess Of Sussex

The recent announcement by the Duke and Duchess of Sussex to step back from their ‘senior’ royal status has brought back into focus that the duchess is a US citizen. When their marriage was first announced, several articles raised this, pointing out that, as such, she would still be liable for US tax. This raised concerns that the financial aspects of the royal family could come under the watchful eye of the Internal Revenue Service (IRS).

While this is something of a red herring, nevertheless, marriage between a US citizen and a non-American is quite common in the UK. This ‘split nationality’ of the marriage raises several tax issues that are quite different from a marriage where both parties are the same nationality.

The duchess, as a US citizen, is subject to all US tax laws. Being a member of the royal family provides her with no unique protection (other than sophisticated tax advisers who we can assume she has available to her). Thus, she must file US income tax returns on an annual basis reporting her worldwide income and pay tax on this whether she lives in the UK, Canada or anywhere else. Assuming she is or will become, a UK tax resident (subject to UK tax rules), she may be able to reduce her US tax by any tax she pays here. This would also hold true if she becomes a Canadian resident.
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FBAR Non-Willful Penalties Are Real

DARLENE HART

While there has been no official change to the current FBAR penalty rules we laid out in 2015, it should be noted there was a recent court case which has reached an unfavorable result for FBAR Penaltiestaxpayers with regard to potential FBAR non-willful penalties.

In an April 2019 California District Court case (U.S. vs Boyd), the court ruled that while the penalty rules for non-willful failure to comply with FBAR reporting requirements are ambiguous, it agreed with the IRS that it is more appropriate to impose the penalty ($10,000 max for the years dealt with in the Boyd case) on unreported accounts, on an account by account basis rather than per a calendar year penalty. So, rather than a maximum $10,000 penalty for all unreported accounts in a given year, in Boyd, the taxpayer was assessed a $10,000 per account penalty per year of non-compliance.
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IRS Publication Error: Were You Misled By The IRS Publication 54?

IRS Publication 54- Were You Misled?

The Federal tax return filing thresholds were updated for the 2018 tax year, with the most significant change being for individuals filing as “Married Filing Separately.” The income tax return filing threshold was reduced from $4,050 in 2017 to just $5 for 2018. However, Publication 54 – Tax Guide for U.S. Citizens and Resident Aliens Abroad, for the 2018 tax year, incorrectly stated that married taxpayers filing separately must file a return only if the individual filer’s gross income equals or exceeds $12,000.

Meanwhile, the IRS website and the 2018 instructions for Form 1040 correctly indicated that a married filing separately taxpayer must file a tax return if the individual’s gross income is at least $5. They failed to mention the change in the more detailed Publication 54 on which many US taxpayers living abroad rely.

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Tax Cuts And Jobs Act: IRS Final Regulations On Estate/Gift Tax

DARLENE HART - Tax Cuts And Jobs Act Estate/Gift Tax

The Tax Cuts and Jobs Act (TCJA), enacted in December 2017, increased the life-time exclusion amount of transfers subject to Estate/Gift tax from $5 million to $10 million. Adjusted for inflation, this amount is $11.4 million in 2019. The TCJA also provides that this higher amount will revert to its pre-TCJA amount after 2025.

The IRS has now issued TCJA final regulations to address concerns that an estate tax could apply to gifts exempt from gift tax by the increased TCJA amounts in excess of the historic exclusion amount.

The final regulations provide a special rule that allows the estate to compute its estate tax credit using the higher of the TCJA exclusion amount or the or the pre-TCJA amount applicable on the date of death with respect to gifts made during the decedent’s lifetime.

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IRS Tax Form Update On Virtual Currency

DARLENE HART- Cryptocurrency and Taxes

Please note, the IRS released an early draft Form 1040 for the 2019 tax year which contains a new item – 2019 Form 1040, Schedule 1, Additional Income and Adjustments to Income. The checkbox at the top of Schedule 1 asks taxpayers about their interests in virtual currency. Specifically, it states, “At any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?”

The virtual currency issue is a pet project of the IRS, and they are taking steps to identify those with such accounts. If you have virtual currency, make sure to read the instructions and correctly complete this checkbox. If you had any virtual currency transactions, you need to file Schedule 1 and check the ‘Yes’ box even if you have no other reason to file Schedule 1.

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IRS Issues New Revenue Ruling On Tax Treatment Of Cryptocurrency Events Called Hard Forks And Airdrops

Darlene Hart

Please note, the IRS released an early draft Form 1040 for the 2019 tax year which contains a new item – 2019 Form 1040, Schedule 1, Additional Income and Adjustments to Income. The checkbox at the top of Schedule 1 asks taxpayers about their interests in virtual currency. Specifically, it states, “At any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?”

The virtual currency issue is a pet project of the IRS, and they are taking steps to identify those with such accounts. If you have virtual currency, make sure to read the instructions and correctly complete this checkbox. If you had any virtual currency transactions, you need to file Schedule 1 and check the ‘Yes’ box even if you have no other reason to file Schedule 1.

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Expatriated From US? Intend To Expatriate? New IRS Procedure

Darlene Hart

On September 6, 2019, the Internal Revenue Service (IRS) announced a new procedure which allows certain non-compliant US citizens who relinquished their US citizenship to become US tax compliant.

This procedure is geared towards ‘Accidental Americans’ who were unaware of their US tax obligations. As well, under this procedure, no US social security number is required.

The main eligibility points include:

1.       Prior compliance failures were non-willful.

2.       Past tax liability is not in excess of $25,000 for the six years of returns to be filed.

3.       Less than $2 million in net assets as of expatriation date.

4.       Expatriated after March 18, 2010.  Must expatriate prior to filing under this procedure.

5.       It is limited to individuals only.

6.       The taxpayer has no tax filing history as a US citizen or resident.

7.       Must include a copy of approved form DS-403, Certificate of Loss of Nationality with the filing.

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United States LLC- Is It A Smart Move For Foreign Nationals?

Darlene Hart LLCs

The filing requirements and practical application of a US LLC for foreign owners may force many foreign nationals to reconsider their options.  As of January 1, 2017, Limited Liability Companies (LLCs) formed in the United States, which are treated as disregarded entities and wholly-owned by foreign persons, are subject to new IRS reporting requirements.

Such foreign-owned US LLCs must file IRS Form 5472 if there are transactions between the direct OR indirect owners of the US LLC and the LLC itself. The IRS is asking for the tax resident status of the direct and indirect owners of US LLCs including information on the amount of cash or assets transferred to or from them. Form 5472 is not an income tax return, it is merely an information return which must be filed annually, but failure to file this form can result in a $25,000 penalty.

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US Supreme Court Wayfair Ruling Impacts Non-US Companies

Darlene Hart4

A US Supreme Court ruling last year is expected to impact every company that sells goods or services into the US within months, or even weeks and days. In many places, it has already begun.

The ruling, South Dakota v. Wayfair, is considered precedent-setting because of its finding that US states may charge tax on purchases made to individuals and businesses within their borders by out-of-state sellers, even if these sellers don’t have a physical presence in the state.

(Wayfair is an NYSE-listed e-commerce company based in Boston, Massachusetts. Two other defendants in the case, Overstock.com Inc. and Newegg, Inc., are also US-based internet retailers.)

Until the Supreme Court’s decision, states had the authority to impose a sales tax collection obligation only on businesses that were physically present within their borders.

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Most Important Set Of FATCA Regulations To Appear In Some Time If You Are A Trustee Of One Or More Documented Trusts

Darlene Hart, CEO US Tax And Financial Services

The US Internal Revenue Service and US Treasury have published what we regard as one of the most important sets of regulations to appear in some time – at least for anyone who happens to be a trustee of one or more trustee documented trusts; or who is  a compliance specialist with an institution such as a fund administrator, bank, brokerage firm  or in any other similar entity  with US persons among their clients, settlers and trust beneficiaries.

The “Regulations Relating to Verification and Certification Requirements for Certain Entities and Reporting by Foreign Financial Institutions (FFI’s),” (issued as TD 9852), focus on the way key information is provided to the US tax authorities under the Foreign Account Tax Compliance Act (FATCA) regime.

These regulations were effective as of March 25, 2019. There is obviously much to digest in this document, however, a few key points are essential to take on board for those in the business of looking after trusts with US connections, or similar cross-border arrangements involving American citizens, clients or beneficiaries.

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